What Are the Best Practices for Dividing Property in Divorce?

Dividing community property is designed to bring fair and equitable distribution of the assets and debts acquired during a marriage. Proper division affects the financial stability and future well-being of both parties. An experienced legal professional is vital in this process, as they apply best practices, such as accurate asset valuation, community versus separate property identification, and strategic negotiation.

Dividing Community Property

In California, the process of dividing community property in a divorce involves identifying and valuing all marital assets and debts.

Community property includes all assets and debts acquired by either spouse during the marriage, such as income, real estate, and personal property. Both spouses own community assets equally, regardless of whose name is on the title.

Separate property, on the other hand, consists of assets and debts acquired before the marriage and inheritances and gifts received by one spouse during the marriage. Separate property remains with the owning spouse after divorce.

California law mandates the equal division of community property. This means that the total value of the community property must be divided as equally as possible between the spouses. The division can be achieved through mutual agreement or, if necessary, through court intervention. The court aims to ensure a fair distribution, considering the nature and value of assets and debts. This equal division principle ensures that both parties leave the marriage with a fair share of the assets and liabilities accumulated during their union.

However, certain exceptions exist to ensure that the division of property in a divorce case is fair and considers the unique circumstances of each case.

• Single Asset Award Based on Economic Circumstances: The court may award a single asset to one spouse if dividing it would cause undue economic hardship. This often applies to businesses or income-producing assets that would lose value if split.
• Offset for Misappropriated Assets: If one spouse has misappropriated or fraudulently disposed of community assets, the court may award the other spouse a greater share of the remaining assets to offset the loss.
• Property Valued Less than $5,000: The court may award one spouse a particular item of community property worth less than $5,000 if it would make the overall division more equitable, especially when dividing the item would be impractical or cumbersome.
• Personal Injury Damages: Personal injury damages awarded to one spouse are usually considered separate property. However, if these damages are received during the marriage, they may be partially characterized as community property and subject to division based on fairness.
• Educational Loans: Debts incurred by one spouse for their education are considered that spouse’s separate debt. These loans are not subject to division and remain the responsibility of the spouse who benefited from the education.
• Community Debts Exceeding Community Assets: If the community debts exceed the community assets, the court may assign the excess debt to the spouses fairly and justly, based on each spouse’s ability to pay.

Dividing Community Debts

Community debts are obligations incurred by either spouse during the marriage for the benefit of the community. Under California law, both spouses are equally responsible for repaying community debts. This principle applies regardless of individual income or who incurred the debt. Community debts include any financial obligations accrued from the date of marriage until the date of separation. This includes mortgages, credit card debts, car loans, and other liabilities.

During divorce proceedings, community debts are generally divided equally between the spouses. The court aims for a fair distribution, considering the nature and purpose of the debts and each spouse’s financial circumstances. The court may assign specific debts to one spouse if it aligns with fairness and practicality, especially if one spouse is better suited to handle particular obligations.

Credit card debt division in divorce can be complex, as the card might be in one spouse’s name, but the charges up to separation are shared. If the non-owner spouse is ordered to pay but defaults, creditors can only pursue the card owner.

Thus, it’s often better to assign the debt to the card owner and balance this with other assets or debt allocations. According to California Family Code § 2622(b), if debts exceed assets—resulting in a net negative estate—the court can divide assets unequally based on each party’s ability to pay. Lower-income spouses should request such an unequal division.

Valuation

Under California Family Code § 2552, the valuation of community property is central for the fair division of assets during divorce proceedings. This statute mandates that community assets and debts be valued as close to the date of trial as possible, ensuring an up-to-date and accurate assessment of their worth. The primary aim is to achieve an equal allocation based on the current market value, reflecting any fluctuations in asset values or debts that may have occurred since the separation date.

The valuation process involves appraising various types of property, including real estate, businesses, personal property, and financial assets. Accurate valuation is essential for determining each spouse’s fair share of the community estate. Discrepancies in asset values can lead to disputes, necessitating expert appraisals or financial analysis to establish true market values. By adhering to § 2552, the court seeks to ensure that both parties receive a fair and just division of marital property, reflecting their current worth.

As a central issue in divorces, establishing valuation requires a thorough and methodical approach to collecting evidence and building your case, including:

• Qualified Appraisers and Experts: Certified professionals are essential to appraise real estate, businesses, and valuable personal property. Their expertise ensures accurate and reliable valuations that the court recognizes.
• Comprehensive Financial Documentation: It is important to collect and organize all relevant financial documents, such as bank statements, investment accounts, tax returns, and property deeds. Complete and accurate records provide a solid foundation for valuation.
• Professional Financial Analysts: Financial analysts are often employed to evaluate income statements, balance sheets, and cash flow reports for complex assets like businesses. Their analysis helps determine the business’s true market value.
• Current Market Conditions: Assess assets based on current market conditions, ensuring valuations reflect the latest economic trends and property values. Tracking and demonstrating market conditions aligns with the requirement to value assets as close to the trial date as possible.
• Updating Valuations: Revisit valuations periodically, especially if there’s a significant delay between the initial appraisal and the court proceedings. Updated valuations account for any market changes or fluctuations in asset values, ensuring accuracy at the time of division.

Alternate Valuation Date

Requesting an Alternate Valuation Date in California divorce proceedings allows for asset valuations at a date different from the trial date, often to reflect a more accurate value. This can be a pivotal move when there are significant changes in asset values post-separation.

To request an alternate date, a party must demonstrate good cause, such as substantial appreciation or depreciation of assets, changes in market conditions, or other relevant factors affecting value. The requesting party must give the other party 30 days’ notice, ensuring they have adequate time to respond to or contest the request.

This practice can prevent unfair outcomes by capturing a more representative value of the assets. For example, if a business significantly increases in value after separation due to the efforts of one spouse, an alternate valuation date might more fairly reflect the contributions and ensure equitable division. Courts will consider the justification and impact on both parties before approving an alternate date.

Professional Legal Advocacy

An attorney familiar with California law uses best practices to effectively represent clients in court, negotiate with opposing counsel, and reach fair property division settlements. Their expertise ensures compliance with legal standards and maximizes client interests. For professional guidance and to secure a fair outcome in your property division case, contact Khosroabadi & Hill at 858-240-2093 to schedule a free consultation today.